Alfa Part of Rumored Fiat-Audi Discussions, Sources Say

Fiat could use a quick infusion of cash to complete its takeover of Chrysler, observers have noted. However, CEO Sergio Marchionne may be more interested in selling parts arm Magneti Marelli than Alfa.

TURIN – Alfa Romeo is at the core of top-level negotiations between Audi and Fiat and might be near to a sale, reliable sources here and in Ingolstadt, Germany, say.

Sources close to both Fiat CEO Sergio Marchionne and Audi CEO Rupert Stadler confirm the two are in talks over a major deal.

The top subject reportedly involves the sale of Alfa, but this time not only the brand but Fiat’s Pomigliano assembly plant also is on the table.

If the discussions bear fruit, the facility would return to building Alfas under Audi. Pomigliano was built in the late 1960s specifically for Alfa production, but currently makes the Fiat Panda.

Discussions between the two auto makers also could veer toward a sale of Fiat’s Magneti Marelli auto parts unit.

Marchionne has signaled a willingness to part with Magneti Marelli as a way to raise cash, and Audi has said it would like to acquire a components manufacturer and establish a new research-and-development arm in Italy, where it now has a considerable stake.

The German luxury-vehicle maker already owns Italian exoticar builder Lamborghini and motorcycle maker Ducati. Its portfolio in the country also includes styling center Italdesign-Giugiaro, acquired in May 2010.

Ingolstadt-based Audi spokesman Juergen De Graeve says, "There is no substance in the news.”

Marchionne repeatedly has said Alfa Romeo is not for sale, and he focused more attention on product for the brand in a recovery plan he rolled out in January. At a presentation of the strategy to the media, Marchionne said Fiat would focus on its premium brands, with eight new and one restyled model planned for Alfa by 2016.

But Fiat needs to start implementing those product plans, factory upgrades and improvements to its sales networks, and the tough European market climate could be making that difficult.

In addition to financing new models, Marchionne likely is eager to complete the takeover of Chrysler in the U.S., which hinges on purchasing shares held by the United Auto Workers union’s Voluntary Employee Benefit Assn. The value of that stake is a point of contention between Fiat and the VEBA.

Selling Magneti Marelli would cause little drama with unions in Italy. That wouldn’t be true with a sale of Alfa Romeo, which would draw heat from government leaders, unions and most other Italians.

But if Marchionne could persuade Audi to take the modern and efficient Pomigliano d'Arco plant along with Alfa Romeo, he might be considered a hero here. And if the price is right, it might ensure a better future for the newly born Fiat-Chrysler.

Alfa Romeo’s future could be brighter under Audi and Volkswagen Group, as well, some analysts believe.

Time is running short for Marchionne in his dealings with the VEBA, which has moved on with its request for an initial public offering of its minority, yet significant, 41.5% stake in Chrysler as a way to sell its shares at a fair price.

The recently delayed ruling by a Delaware Chancery Court on the fair price for the first two call-options (for a 3.32% stake each) on Chrysler shares likely keeps Marchionne awake at night. Chrysler has the right to buy 3.3% stakes from the VEBA every six months, assuming the two can agree on the price.

Early this month, he told reporters Fiat was willing to settle the case before the judge rules on the stock’s worth. Without a deal, Fiat risks the court attaching a higher price to the stock than it is willing or able to pay.

Considered even worse for Marchionne is the risk the VEBA could succeed in launching an IPO before Fiat can gather the cash it needs to take full control of Chrysler.

Only with 100% of Chrysler's shares will Fiat have the freedom it wants to run the U.S. arm as it pleases.

Whether Fiat needs the extra $2 billion or so it might draw for the Pomigliano d'Arco plant and Alfa Romeo depends on where Chrysler’s stock price settles and the amount of money Marchionne requires to finance both his industrial investments in Europe and corporate grand design across the Atlantic.

Discuss this Article 7

You have most of the facts you need to debunk the rumour in your own article, yet here we are anyway.

If you've been to the briefings and/or read the investor material, you'll have seen that Alfa are core to Fiat's future. You'll also have seen that the available capital is apparently present, and that the whole thing is designed around what you call 'the tough European market climate'.

You'll also know that Pomigliano d'Arco has just been expensively retooled for the Panda, and that there are several other plants (Mirafiori, Cassino) that are already lined up for Alfa products - so why would Pom be sold, and why would it produce Audi Alfas?

This story originates in 2010 or earlier, with VW expressing interest in the same (do Audi have that degree of autonomy?) so I don't really know why it's being served up again.

You are correct in that Sergio Marchionne made Alfa a big part of his Fiat revival plan months ago, as we point out in the story.

But the report of talks between Marchionne and Audi CEO Rupert Stadler is new information, not a rehash of the stories making the rounds months ago. And we stand by the information that Alfa and the Pomigliano plant is part of the discussion.

We believe the story presents a balanced view as to why this may be under consideration once again, and why it may not happen.

I would suspect Fiat may be more interested in selling parts operation Magneti Marelli to raise cash than in delivering Alfa to Audi, while Audi and parent Volkswagen may be more eager to acquire Alfa than the components arm.

Fair enough. The only way I can see things changing is if SM is shown to be wrong about the budget/premium polarisation of the market, which would scupper Alfa's opportunities. Even then, the sale of Alfa would be very much a retreat for Fiat - what would they do instead but shrink?

Since it so dramatically compromises not just the current plan, but many of the routes away from it too, I can't see it happening.

Obviously VEBA is strategically vital. They will always talk up their own liquidity position too, but all the evidence I've seen suggests that the realignment plans can go on without it - i.e. there is sufficient capital to pull it off regardless. The presentation, 'All that matters is what’s ahead' has a piece on exactly that.

Plant utilisation might be a more feasible talking point; I don't know what the production lifetime of the Panda at Pom is, or what VW capacity is like, but there's fundamentally still an overcapacity in Fiat's European plants. I can only suggest that perhaps they're discussing the longer term regarding that.

Agree with you on the future of luxury market and importance to Fiat in its game plan. Just a thought, and no real basis for this I can point to, but wonder if SM believes Maserati is the better bet in that regard. Jettisoning Alfa would free up money and management time for greater focus on Maserati.

That's a very good question. On the one hand, Alfa under Fiat has always been hamstrung by the rest of the family, especially Maserati, which also makes for confusing product placement. That same problem has given us the effective death of Lancia.

On the other hand, you get quite a lot for free. For example, the next Alfa will be an E segment repackaging of the Ghibli; we'll probably also see a Maser version of the 4C one day.

Would any of those cars be feasible on their own? Possibly, but if you don't use appropriate sharing then you end up with an evolutionary dead end like the Alfa 159.

Then the question is: does having both brands sell more cars than if they were just Maserati alone? My guess is it pays well, but I couldn't say for sure. I think we all know the Volkswagen Group view on it!

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